A Theory of Managed Trade

Kyle Bagwell, Robert W. Staiger

NBER Working Paper No. 2756
Issued in November 1988
NBER Program(s):   ITI   IFM

This paper proposes a theory that predicts low levels of protection during periods of "normal" trade volume coupled with episodes of "special" protection when trade volumes surge. This dynamic pattern of protection emerges from a model in which countries choose levels of protection in a repeated game setting facing volatile trade swings. High trade volume leads to a greater incentive to unilaterally defect from cooperative tariff levels. Therefore as the volume of trade expands, the level of protection must rise in a cooperative equilibrium to mitigate the rising trade volume and hold the incentive to defect in check.

(374 K)

(224 K)

Published: American Economic Review, September 1990.

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